S Corp Texas: Everything You Need to Know
An S Corp Texas is formed by filing the Certification of Formation with the Secretary of State. 3 min read
2. S Corporation: An Overview
3. S Corp Eligibility
4. How to Set Up an S Corp in Texas
S Corp Texas
An S Corp Texas is formed by filing the Certification of Formation with the Secretary of State. A corporation is considered a separate and distinct legal entity from its owners. The corporate business structure provides limited liability for owners, centralized management, a perpetual existence, and ease of transferability between owners. Owners in a corporation are referred to as shareholders, and shareholders hire directors to oversee the daily operations of the corporation.
S Corporation: An Overview
An S Corporation is a corporation that chooses to elect S Corp status by filing Form 2553 with the Internal Revenue Service (IRS). If you do not elect to be taxed as an S Corp, then your corporation will automatically operate as a C Corporation.
While both C and S Corporations provide limited liability protection for their shareholders, the S Corp avoids double-taxation by passing through all of its profits and losses onto the shareholders who report it on their personal income tax returns. On the other hand, C Corps are subject to double-taxation – once at the corporate level and again at the personal level for any dividends distributed to the shareholders.
S Corp Eligibility
In order to elect S Corp status, your business must have the following elements:
• Your business must be a domestic corporation
• Must be owned only by U.S. residents; non-resident citizens cannot form a corporation in the U.S.
• Cannot have more than 100 shareholders
• Can have only one class of stock; preferred stock is not allowed
• Your business must not be ineligible, as some banks, insurance companies, and domestic international sales corporations are generally ineligible from electing S Corp status
How to Set Up an S Corp in Texas
First, you’ll want to conduct a business name search. You can do this by visiting the Texas Secretary of State’s online SOS Direct database. You will want to ensure that there are no other Texas corporations using the name you want to use. You can also call or write a letter to the Secretary of State’s office to see if the name you want to use is available. When it comes to choosing your business name, keep in mind that you need to include the business designator, i.e. Corp, Corporation, Inc., Co. or Company.
• Your business name/address
• Name/address of at least one director
• Registered agent name/address
• The number of shares being issued
• The purpose of formation
• Name/address of individual filling out the form
Once you have finished drafting the form, you can mail, fax, or hand deliver the form. You can also submit the document online. The filing fee is $300.
Next, you will draft the bylaws, which will identify a variety of information relating to the business, particularly how meetings will be held, directors responsibilities, officer names and duties, and how important business decisions will be handled. While the State of Texas doesn’t require bylaws, it is important to have details regarding the business in this document so that it can be used in the future to prevent potential legal disputes.
You will need to obtain an Employer Identification Number (EIN) from the IRS. You can do this by either submitting a request online or calling a 1-800 number that you can find on the IRS website. You will need to provide your business name and address, identify the business’s activities, and number of people working for the business. You will immediately receive an EIN once you submit the request online or complete the telephone request.
You’ll also want to file Form 2553 to elect S Corp status. You can do so by submitting the form on the IRS website, mailing it, or faxing it. Here, you will include your business name/address, date of incorporation;,EIN, and state of incorporation, i.e. Texas. You will also need to include the name, address, and signature of all shareholders. If you choose to mail in this form, you can submit it to IRS Service Center, Ogden, Utah 84201. If you choose to fax it, you can fax it to 801-620-7116.
If you need help learning about an S Corp in Texas, or forming your Texas S Corp, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Menlo Ventures, and Airbnb.